If you’re in the market for a new home, there’s good news. First, the real estate market is booming right now. Second, there are a wide array of mortgage loans available to you, whether this is your first house or your 10th.
But how do you find the right mortgage loan for your new home? Are some loans better than others?
We’re here to answer all of your questions. Keep reading for a quick guide on how to choose the best mortgage based on your budget, credit, and other circumstances.
Interest Rates and Loan Terms
First, let’s talk about interest rates. The interest rate you accept for your mortgage loan will greatly affect your costs over time.
For example, let’s look at a $200,000 home loan over 30 years with a 5% interest rate. By the time you pay off that loan, you will have dumped $386,512 into your house. That’s almost double what the home is worth.
If you drop that rate to 3.5% under the same conditions, your total payoff amount drops to $323,312. It’s still a lot of money, but far less with the lower interest rate.
To decrease your total costs further, consider opting for 15 or 20-year home mortgages. To find out more, use a mortgage loan calculator to determine your total costs for specific loans.
Common Mortgage Loans
Now that you know a little bit more about the costs of interest and how the length of the loan affects your payments, let’s explore the various types of loans. Common mortgage loans included fixed-rate mortgages, adjustable-rate mortages, conventional home loans, and government-backed loans.
Fixed-Rate Mortgages
As the name suggests, fixed-rate loans provide you with an interest rate that will not change throughout the life of the loan. Of course, if you decide to refinance your mortgage, this is subject to change (for better or worse). These types of loans provide greater peace of mind in the form of predictable loan payments.
Adjustable-Rate Mortgages
Adjustable-rate loans generally offer a low-interest rate for the first few years. After this time, the rates will fluctuate based on the real estate market and the overall condition of the economy. Your loan payments could go up or down with very little regulation.
Conventional Home Loans
Conventional home loans are some of the most attractive mortgage loans available to people with desirable credit scores. You generally need a credit rating of 620 or higher to get approved for these mortgages.
Furthermore, if you don’t provide a downpayment of 20%, you’ll need to purchase mortgage insurance. However, these loans typically offer the best mortgage loan rates.
Government-Backed Loans
Government-backed loans are the best mortgage loans for people who have less credit and less money for a downpayment. FHA loans, for example, can provide funding for people with a credit score as low as 500 if you can produce a 10% downpayment.
Alternatively, if your credit score 580 or higher, you can get away with a 3.5% downpayment.
Specialty Loans Based on Profession
Finally, there are some mortgage loans created specifically for certain types of professionals. For example, many lending agencies provide special loans to first responders. This includes home loans for nurses, firefighters, police officers, etc.
Looking at Mortgage Loans?
If you’re looking to buy a home soon, you need to learn about the different types of mortgage loans. We hope this article helped outline some of your options. Of course, it’s always a good idea to conduct further research.
Check out some of our other articles to find more financial tips and homebuyer advice. Our blog has tons of content designed to help people like you find the answers they need.
